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Archive for the 'Property and Ownership' Category

Ideologies of mortgage financing in Mongolia

By Rebekah Plueckhahn, on 16 March 2018

Rebekah Plueckhahn is a Research Associate on the Emerging Subjects Team at UCL – Anthropology. This post draws from research that forms part of her book Shaping Urban Futures in Ulaanbaatar forthcoming with UCL Press.

Visiting Mongolia in November-December 2017, many people I spoke to were preoccupied with the topic of the current influence of the recently implemented oversight by the International Monetary Fund (IMF) and their influence in numerous sectors of Mongolian economic governance as they prepared to make sizable loans to the country. The influence of the IMF is currently extending into a vast number of areas, including macroeconomics, national ministries, as well as Ulaanbaatar municipal budgets. One area that had implications across these areas was the IMF’s current recommendations for the systems of financialisation that have made Mongolia’s 8% mortgage (ipotek) program possible through Mongolia’s secondary mortgage market.

As part of their recommendations, the management of Mongolia’s secondary mortgage market is being transferred away from Mongol Bank (the Central Bank of Mongolia), to the government, in particular, the Ministry of Finance (IMF 2017, 15 and 67). This has come as part of redefinitions and restructurings of the role of Mongol Bank vis a vis the Mongolian government, that has been cemented through the recently passed amendments to the töv bankny tuhai huul’ or the Law on the Central Bank of Mongolia. Part of these restructurings has been attempts to increase the central bank’s independence from government, including limiting its influence in state budgets, and putting measures in place so that it can better act as an agent of government, more involved in price stability rather than inflation and exchange rates (IMF 2017, 44). Talking with people and reading about these types of restructurings brought into view different anticipatory conceptual ideals of what an economy or financial arrangements should look like or become. The IMF recommendations followed their Safeguards Assessment of 2017, an initiative that encourages standardisation of central banks internationally. This forms part of a much longer history of central banks worldwide becoming institutions that adhere to the ‘rules and rhythms of the market’ rather than political influence (Bear 2015, 190-193). Mongolian parliament member D. Damba-Ochir, quoted in news outlet montsame.mn, stated that the amendments to the law on the central bank will encourage togtvortoi baidal or stability in times of financial crisis (ediin zasgiin hyamral). Another person I spoke to said the move to transfer the ipotek program to the Ministry of Finance was done to encourage sustainability.

Expanding monetary circulations

Hearing these updates at the end of 2017 gave me an opportunity to reflect upon other perceptions on the roles and make-up of Mongolia’s secondary mortgage market and the ethics of mortgage provision. It also gave me a chance to reconsider the links between these factors and the ways this scheme has unfolded and manifested throughout areas of Mongolia’s systems of financialisation, built environments and personal spheres. During the course of my research from 2015-2017, different manifestations of economic ideologies have proliferated throughout the entangled assemblage of actors that comprise Mongolia’s banking and construction sectors. Through following different, interlinked forms of monetary circulation (möngönii ergelt) that allow people to access apartment mortgage financing, what I was alerted to were the different and sometimes (but not always) competing perceptions of how things should be and how the housing ‘market’ should be formed.

Out of the multiple influences of a slowly emerging housing finance program during the 2000s, initiated partly through assistance from the Asian Development Bank and USAID, as well as a hugely increased housing stock brought on by Mongolia’s speculative boom in foreign direct investment from 2009-2012, Mongolia’s mortgage ipotek system was launched in 2013 as an attempt to reconcile the huge demand for housing and the lack of affordable mortgage financing then available. This mortgage system, run by the Mongolian Mortgage Corporation (Mongolyn Ipotekiin Korporatsi) (MIK), provided an interlinked secondary mortgage market through funds issued by the Central Bank of Mongolia to participating commercial banks, allowing them to issue 8% interest ipotek (mortgages).

The 8% interest ipotek is the only kind of more affordable form of housing finance available on the market in Mongolia. It is also quite new. The alternative, for apartments bigger than 80sqm, is to take out a oron suutsnii bankny zeel (apartment bank loan), a loan drawn from savings within commercial banks themselves (savings-based loan), which is often offered at 17-20% interest and a shorter time frame in which to pay it back. For the 8% interest ipotek mortgage, the 30% deposit and the considerable employment history required in order to qualify for it means that this option often does not meet the intended market of low-middle income buyers, nor has it allowed a great deal of people from the peri-urban ger areas of Ulaanbaatar to access apartments. However, among people who can afford it, the demand has been, and remains, extremely high. However, due to a depreciation of the Mongolian tögrög and a lack of funds to inject in the system, the issuance of the 8% ipotek loan from the central system has been varying, including it being paused at the end of 2015, and resumed in varying ways at different points since.

Discussing 8% ipotek mortgage issuance with loan officers at different banks in November 2017, I was informed about the high demand for these mortgages and the fact that some customers are still waiting for money to appear even though their mortgages had been approved a year ago. Attempts to meet this high demand have given rise to different kinds of monetary circulation in order to make this possible. Expanding beyond the secondary mortgage market, within Mongolia the systems of financialisation and monetary links comprise of an ever-expanding set of circulations, arrangements, exchanges and connections. While the economy has stalled, the 8% interest mortgage has remained a kind of idealised form of housing finance regardless of the changing nature of the systems that support it or the fluctuating levels of funding different economic institutions receive.

One such way to meet this demand has been the cooperation between banks and construction companies in an attempt to maintain the 8% ipotek mortgage as an option. Speaking with a loan officer in a bank in Ulaanbaatar, they told me how customers can qualify for 8% interest house loan through their bank if they buy an apartment in buildings built by particular construction companies. This circulation of money between a bank, an individual and a construction company allows construction companies a better chance of attracting customers in order to recoup construction costs through attempting to meet the high demand that the system will no longer support. These ‘circulations’ sometimes consist of the conversion of other forms of capital into an expanded type of circulatory network. As seen in the following advertisement posted in January 2017, this construction company at that time received land (including compensating for self-built buildings or baishin) and cars in lieu of a 30% down payment (urd’chilgaa tölbör):

Figure 1: In January 2017, a construction company advertises a variety of different and flexible conditions on acquiring an 8% interest mortgage through their partner bank, including items that can be accepted in lieu of a deposit. They promise a ‘quick decision’ on apartment loan applications.

Considering the construction company’s role in promoting arrangements like this expands our understandings of how Mongolia’s secondary mortgage market can be conceptualised and redefined. During fieldwork in 2015 and 2016, construction companies were often engaging in forms of bartering of cars and building materials in order to complete projects and sell apartments. Collaborating with banks forms another aspect of doing business.

Expanding ideologies

Such a collaboration between a bank and construction company that provides a different way of financing of a singular (relatively) affordable option allows banks to continue to participate in a form of mortgage financing in the hope that the secondary mortgage market will become increasingly reliable. The idealisation of 8% interest ipotek mortgage extends not only for its ability for a wider group of non-elite people to buy apartments, but also an idealisation of the system itself and what it can bring to the Mongolian economy. Echoing in a different way the IMF stance outlined above, one loan officer told me the secondary mortgage market could ‘ediin zasagiin zöv goldrild oruulah,’ or ‘turn the economy onto the proper course.’ While people are also skeptical of the different arrangements making mortgage financing possible, in the minds of many people the system initiated by the Central Bank exists in its potentiality as much as its practice. Mongolia’s secondary mortgage system is quite new, and like other arrangements and entanglements that make up the mortgage market, it is still in the making. In the meantime, people rely on other connections (Narantuya and Empson, forthcoming), that support this system from within (Maurer 2012, 414). Its proposed transfer to the Ministry of Finance in September 2018 (IMF 2017, 47), will form another substantiation of this network’s financialisation that will undoubtedly give rise to new political and economic relationships, connections and circulations. These, like other forms of financialisation, will further shape this nascent but important network and continue to expand and give rise to different economic ideologies within Mongolia.

I’d like to sincerely thank Batbayaryn Erdenezayaa for her assistance with this research.

References:

Bear, Laura. 2015. Navigating Austerity: Currents of Debt Along a South Asian River. Stanford, California: Stanford University Press.

Bumochir Dulam. 2016. “The Politics of the Mortgage Market in Mongolia.” Emerging Subjects Blog, 29th January 2016. https://blogs.ucl.ac.uk/mongolian-economy/2016/01/29/the-politics-of-the-mortgage-market-in-mongolia/. Accessed 5th February 2018.

International Monetary Fund. 2017. “Mongolia – First and Second Reviews under the Extended Fund Facility – Press Release; Staff Report; and Statement by the Executive Director for Mongolia.” Washington DC. December 2017. https://www.imf.org/en/Publications/CR/Issues/2017/12/21/Mongolia-First-and-Second-Reviews-Under-the-Extended-Fund-Facility-Press-Release-Staff-45505

Maurer, Bill. 2012. “The Disunity of Finance: Alternative Practices to Western Finance.” In The Oxford Handbook of the Sociology of Finance, 413–30. Oxford: Oxford University Press.

Narantuya, C. and Empson, R. (Forthcoming) ‘Networks and the Negotiation of Risk: Making Business Deals and People among Mongolian Small and Medium Businesses’ Central Asian Survey.

Presenting on the ‘Diverse Economies of Megaprojects’ at 13th Annual Mongolia Development Forum

By Lauren Bonilla, on 24 April 2017

 

On Thursday, April 6, we (Rebekah Plueckhahn and Lauren Bonilla) participated in the 13th annual Mongolia Development Forum, held at the headquarters of the European Bank for Reconstruction and Development (EBRD) in London.  The forum was co-organized by the Ministry of Foreign Affairs, Mongolian Embassy in the UK, Mongolian Association in the UK, Tsahim Urtuu Holboo, Mongolian Business Database, and Council of Mongolians Abroad.  The theme of the day was ‘Opportunities in Mongolia’, which addressed three key topics: Business in Mongolia, Challenges and Opportunities; Social and Legal Issues; and Mega-Projects.

 

Bataa

Bataa Tserenbat, the event organizer, introduces the mission and history of the Mongolian Development Forum to a packed auditorium.

 

Bayar

Bayar Sanjaa, the former Prime Minister of Mongolia and current Ambassador of Mongolia to the UK, gives a welcome address.


We jointly presented in the Mega-Projects session given our respective areas of research on the effects of economic fluctuations in Ulaanbaatar (Rebekah) and the mining industry (Lauren). Although these topics are quite different from each other in many respects, we have discovered in the course of our research that our findings yield many similarities.  We have observed how urban development and the large-scale mine development could both be considered mega-projects in the sense that they promise to be transformational in nature.  They also involve long time horizons in their development and require large amounts of capital investment.  Moreover, while much attention is given to the role of more formal institutions, stakeholders, markets, and policies in influencing the development trajectories of largescale urban and mine projects, our research has shown that a diversity of actors, processes, and practices exist within, help to shape, and are produced from a mega-project.

Presentation

\Bek and Lauren

 

Lauren’s talk discussed a feature of the Tavan Tolgoi coal complex that has long been a source of debate and controversy: the multiplicity of companies that own and operate sections of the deposit located in Tsogttsetsii, Omnogobi province.  In recent years there has been debate about consolidating the ownership of the Tavan Tolgoi deposit so that it is governed by one company instead of the current situation where there are three companies running mine projects in close proximity to each other: MMC/Energy Resources (a publically traded company listed on the Hong Kong stock-exchange), Erdenes Tavan Tolgoi (a state-owned company), and Tavan Tolgoi JSC (a company owned by both the local province and private shareholders).  While this diversity of ownership has presented a number of governance challenges, Lauren talked about how it has also been a blessing to some degree in the current period of economic crisis.  Since the mining companies are differentially exposed to coal markets and operate according to various financing streams and shareholder interests, they have pursued divergent forms of extractive activity in response to the slowdown of the coal economy.  Locally, this has meant that once-booming Tsogttsetsii has avoided facing a singular bust at Tavan Tolgoi.  Instead, small stores, taxi and trucking services, car repair shops, and trade activities, among other businesses, have been able to survive amid the slowdown, even though many have suffered from crushing indebtedness, bankruptcy and capital loss.

Lauren thus stressed the importance of diversification within a mega-project as a means to reduce exposure to market fluctuations, especially in a volatile industry like mining.  She also drew attention to how diverse economic activities always exist around mega-projects, often in unanticipated ways.  She presented an example of a scene she witnessed in April 2016 where a herding household traveled over 100 kilometers to Tsogttsetsii from another district in order to recruit temporarily unemployed mine engineers and professionals from Energy Resources to comb their large herd of goats for cashmere.  In addition to benefiting the herders, the work gave the mine workers something to do instead of sitting idly at home waiting for Energy Resources to resume its operations.

Rebekah opened her presentation by encouraging the audience to think about Ulaanbaatar city as a type of ‘mega-project.’ While different to other types of mega-projects with a more singular aim, she took several key points that apply to mega-projects more generally and applied them to different aspects of Ulaanbaatar. She described this as a useful way to look at the types of transformative visions and diverse economies that the city gives rise to. The first point was how Ulaanbaatar at different planning stages, during socialism, and in the diverse postsocialist environment, has formed a political power center and a locus for economic activity. In the postsocialist environment, the Ulaanbaatar 2020 Master Plan and Development Approaches for 2030, like other plans for different mega-projects, presents  visions for various types of transformations.

Rebekah went on to discuss how urban development in Ulaanbaatar is extremely sensitive to wider economic fluctuations, where the city, like other mega-projects elsewhere, is always partially completed. She emphasized how re-/development projects have long consisted of numerous diverse economic connections. This has meant that the recent economic downturn has affected vast amounts of people throughout the city. In conclusion, Rebekah discussed the economies of land access and land use that shape Ulaanbaatar, especially in the ger areas surrounding the city core. She described these diverse economies as two-fold: the economy of land access, as well as the numerous small business and livelihood opportunities that living on land can afford. She emphasized how influential these urban residents are in shaping Ulaanbaatar as a city, and the importance of incorporating these existing diverse economies in future urban development plans.

The Q&A at the end was very lively. Rebekah was asked about how traffic and air pollution can be mitigated in Ulaanbaatar, to which she emphasized the different plans and efforts currently being discussed by state agencies and development organizations in Ulaanbaatar. Lauren was asked about what Mongolia should do to quickly address the current economic crisis, to which she cautioned against anything that promises a fast fix and discussed how the Emerging Subjects project conceptualizes crisis as a space that can allow for the emergence of new possibilities.

Megaprojects

The ‘Mega-Projects’ panel. From left to right: L. Dulamzul, Rebekah Pleuckhahn, Lauren Bonilla, B. Maral, and A. Gantuya.

 

Related to this latter point, audience members showed great appreciation for the all-female makeup of our panel.  As one Mongolian from the Ministry of Finance mentioned during the reception, mega-projects are typically a highly masculine arena.  Had the panel been organized five years ago during Mongolia’s so-called boomtime, it likely would have been formed by men in suits talking about statistics, investment opportunities, and big infrastructure projects.  Instead, our panel was very much about new ways of looking at and doing things, from our talk on diverse economies to Maral Bayaraa’s presentation about the application of innovative remote sensing technologies and Gantuya Ariunsan’s analysis of strategies to interpret future coal market prices.  If our panel is an example of an opening that Mongolia’s economic crisis affords, then there are indeed opportunities arising to be hopeful about.

The Mongolian Ministry of Foreign Affairs presents awards to forum panelists.

 

All photos © of Ganzorig Ulaankhuu.

Acknowledgements: We thank Bataa Tserenbat for expertly organizing the event, Zula Luvsandorj for chairing our amazing all-women panel, and Ganzorig Ulaankhuu for taking photos at the event and sharing them with us.